Banks beware: broader application of the Quincecare duty?

The Court of Appeal suggests that banks may owe a duty to non-corporate customers that are victims of APP fraud not to process their direct payment instructions.

In Philipp v Barclays Bank UK Plc [2022] EWCA Civ 318, the Court of Appeal considered the parameters of the Quincecare duty. The court found that the duty owed by banks to their customers may arise in the case of a customer directly instructing their bank to make a payment, as a result of that customer falling victim to authorised push-payment (APP) fraud.

Philipp v Barclays: a summary

In March 2018, Mrs Phillip and her husband were victims of an APP fraud, pursuant to which a fraudster known as “JW” persuaded Mrs Phillip to transfer a total of £700,000 in savings in two separate transfers, from her Barclays bank account to two separate bank accounts in the UAE. The couple visited two separate Barclays’ branches in order to effect the transfers.

Mrs Philipp claims that the bank owed her a duty of care, akin to the Quincecare duty, as identified in Barclays Bank v Quincecare [1992] 4 All ER 363. Mrs Philipp claims that the bank should have had proper policies and procedures in place to detect and prevent APP fraud and to reverse or reclaim moneys that had been lost to APP fraud. Due to the sums involved and the highly unusual nature of these transfers in the context of Mrs Philipp’s ordinary banking activities, Mrs Philipp claimed that the bank was on notice that there was a potential fraud being committed and should have delayed the transfers, made further enquiries and alerted Mrs Philipp to the potential risks of fraud.

Barclays applied to strike the case out on the basis that the court should decide that as a matter of law there was no duty of care as alleged by Mrs Phillip.

The Quincecare duty

In effect, the Quincecare duty prevents a bank from executing a payment instruction where it has grounds to believe that the instruction is an attempt to misappropriate the account holder’s funds. The scope of the Quincecare duty has been the subject of increasing judicial consideration in recent years, with the result that its ambit has been expanded. For example, the Quincecare duty had originally been considered as a negative duty not to execute a particular payment instruction. However, following the decision in JP Morgan Chase Bank NA v Federal Republic of Nigeria [2019] EWHC 347 (Comm), the court’s assessment of the measures a bank should take will likely turn on the facts of each case and in some circumstances a bank may be required to undertake active steps to verify payment instructions.   

The first instance decision in Philipp v Barclays

Barclays’ application to strike out the claim was heard in the Bristol Circuit Commercial Court. HHJ Russen QC found that the Quincecare duty could only arise where an agent of a customer (for example, the director of a corporate account holder) attempts to effect a transfer which results in a misappropriation of the customer’s funds. On this basis, the Quincecare duty would not apply in circumstances where the customer (as opposed to someone on their behalf) has made the payment instruction (for example, an individual account holder). HHJ Russen QC considered that allowing an individual account holder to rely upon the Quincecare duty would constitute an expansion of its scope.

On that basis, HHJ Russen QC granted summary judgment in favour of Barclays. Absent the existence of this duty, he did not consider that Mrs Philipp was able to make out her claim.

The appeal

The Court of Appeal found that whilst the legal authorities to date had framed the Quincecare duty by reference to a customer’s agent, that was simply a consequence of the facts in each of those cases, each of which involved misappropriation of funds resulting from the instruction of the customer’s agent. Whilst it will be a matter to be fully examined at trial, the Quincecare duty could equally apply to instructions received by a bank directly from a customer without constituting an extension of the Quincecare duty.

The Quincecare duty forms one aspect of a bank’s overall duty to exercise reasonable care and skill in the provision of its services and the duty can be applied in any case in which a bank has reasonable grounds for believing that a payment instruction may be an attempt to misappropriate funds from a customer’s account. Consequently, the Court of Appeal set aside the summary judgment in this case.

The Court of Appeal’s decision is limited to finding that the duty identified in Quincecare (namely that a bank should make inquiries and refrain from acting on a payment instruction whilst making those inquiries) does not depend on the bank being instructed by an agent of the bank’s customer. It is therefore possible in principle that a relevant duty of care could arise where a customer is a victim of APP fraud and directly instructs their bank to make a payment. The Court of Appeal directed that the question whether there was in fact such a duty in this case should be dealt with at trial.

APP fraud: banks beware

With the increasing levels of APP fraud, this decision could have broad ramifications for financial institutions, including banks and payment service providers, as the decision could open up an influx of claims by defrauded customers. Financial institutions will need to ensure that they have proper policies and procedures in place to warn customers of the risks of APP fraud and to take proper action in circumstances where they are or should be on notice that a customer may be a victim of APP fraud, for example where a customer is making large or unusual payments. Conversely, for individuals who find themselves victims of APP fraud, this decision opens the door for the potential of recourse against their bank under the Quincecare duty.

We have previously commented on broader policy proposals to introduce wider reimbursement protections for consumers that fall victim to APP fraud. There is a clear movement towards protecting customers and it was notable that in this appeal The Consumers’ Association (Which?) acted as an Intervening Party, providing evidence regarding the codes of practice that were in existence or being implemented at the time of the fraud, to demonstrate that the duty of care found by the Court of Appeal is practical and not unduly onerous or unworkable. The implication from this judgment is that banks will increasingly be expected to take active steps to prevent fraud and cannot simply plead that their only duty is to execute customer orders.

In the event that this case does ultimately go to trial, we shall watch with interest to see whether the Quincecare duty is in fact found in this case. Any findings regarding the standards that a bank should meet in order to comply with that duty are likely to have wide-reaching implications.

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